Article on Medicaid

Q: I have just read your article. The material covered is wonderful. Does
this material apply to all states. I live in Virginia and didn't know
if the current legislation was for any gifts made in three years or five
years. Your article indicates five years. Many thanks for answering my
question.

A: As far as I know, the Medicaid 'look-back' period is determined by
federal law, not state.

It was changed from 3 to 5 years in 2006.

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Income Deposit Securities

Q: I read with great interest your column on Income Deposit Securities. They looks like like something I'd definitely want to invest in.

Are the ones you mentioned (BGF, DRY and CVP) and others listed like regular stocks on the NYSE?

After investigating each, can I buy them as you would any other stock; that is, through my online broker?

Thank you so much,

A: Yes.

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"Free" Financial Seminars

Q: I have a friend in NJ who attended one of those "free" financial seminars. She took the bait and transferred her entire IRA to an Equity Index Annuity. She knows nothing at all about investing. Is she required to leave the money there for 14 years without paying a heavy penalty?

Of course, she'll have to start taking RMD withdrawals in 4 years. I explained that to her, but I haven't told her what I think of her investment, because if there's no way out, then it wouldn't do any good to warn her. I keep my husband's IRA in Vanguard Index Funds. The big selling feature was that she would never lose her principal. Isn't there something she can do?

A: It depends on how long she has been in. If it's within the free-look period then she can cancel. Otherwise, not much...

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Recourse for Equity Indexed Annuities

Q: I have a friend in NJ who attended one of those "free" financial seminars. She took the bait and transferred her entire IRA to an Equity Indexed Annuity. She knows nothing at all about investing. Is she required to leave the money there for 14 years without paying a heavy penalty?

Of course, she'll have to start taking RMD withdrawals in 4 years. I explained that to her, but I haven't told her what I think... of her investment, because if there's no way out, then it wouldn't do any good to warn her. I keep my husband's IRA in Vanguard Index Funds. The big selling feature was that she would never lose her principal. Isn't there something she can do?

A: It depends on how long she has been in. If it's within the free-look period then she can cancel. Otherwise, not much...

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Should I Put My Kids Names on My Home Deed?

Q: I am a senior that is on a low income and owns a small home in a small town. I am a 67 year old male that lost his wife about 7 months ago. So, only my name is on my deed. Do you think I should put my kids names on my deed now, or should I draw up a will? I would appreciate your advice here.

A: That is one way to handle it, but it would be considered a gift to them. You could also set up a Will/Living Trust. The Living Trust would allow the real estate to pass without going through probate.

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Put IRAs in Our Trust?

Q: I read your article Senior Citizens Need to Understand Why a Will Sometimes Won't Do" and your offer to answer financial questions.

My wife and I have joint wills, leaving all to each other and then divided equally between 3 kids. We also have a living trust that does the same. My question is regarding IRA's - both regular and Roth. I was told not to put them in the trust - I don't remember why, but the reason sounded good at the time. Is this good advice?

A: Your trust would have to have special language to allow the tax-deferred benefits of the IRA's to continue past your deaths. Since they avoid probate anyway, you can just name the beneficiaries on the IRAs.

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Trusts and Probate

Q: Almost all of our assets are within a Family Trust. Within the Trust we have named the desire for the distribution of our assets. Must this document go through probate?

A: Those assets titled in the name of the trust should not have to go through probate.

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Thoughts From a Former Agent

Q: I found your article very interesting reading as an agent that has been out of the industry for 10 years and now just passing my exam and getting back into it.

You are right, the commissions are... much to high, so EIAs become driven by greed rather than the right solution for the client.

The EIA has also become more and more complex to understand for the client and agent. I was one of the first to offer a EIA toward the end of 1994 with Keyport Life before my retirement . That first contract was simple to understand.

It has a reducing surrender charge for 5 years and then you could take all your money without any penalty. It took the high water mark of 5 anniversary dates and paid the highest of the 5. It paid 90% participation of the S&P 500 stock index. My clients thought that was just great.

I replaced a number of the traditional fixed annuities paying 4.5%. Most of my clients got very high returns over that 5 year period because the market went up, up, up.

I do not know why the indexed annuity have so many moving parts compared the first one that was put out by Keyport Life. I wish I could sell that first one I had over again. I am still looking at all the products in the marketplace and I see a few products that have no surrender charges. They can move the money if they are not happy.

A: I agree with you!

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How Much Power Does a POA Have?

Q: My husband is POA durable and medical, executor and trustee of his grandmother's estate. She has dementia and does not handle any of her financial matters anymore. Her doctor says she is incompetent. We have moved her down here with us from another state to take care of her. At times she wants to move back due to having lived there all her life.

She can no longer live alone. She is here with us so that... we can take care of her. We are concerned that she may ask another relative to take her back. She does not remember what she says within an hour. What protection does my husband have or what can he do to prevent this from happening with out going to court? If she does try to get someone to take her back?

A: He can control her finances and medical decisions but still not have control over her person. To do that, he needs to be appointed her guardian. That is something that the courts will have to be involved in.

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A Few Questions About Estate

Q: Just a few questions:

1. How am I to determine today if I will need life insurance to cover future estate taxes? We talked to an estate planner and he projected we would have an estate of $1.5 million today. We can't determine the government and what the exemption amount will be in the future either?

2. Does that mean... you think we need some type of permanent insurance (to cover future estate taxes)?

3. Can I use www.uslegalforms.com to obtain the correct documents to set up a living trust fund? I have looked over the documnets and for a small fee they will be sent to us and only need to be notarized. This seems like it would save us $$ instead of paying a lawyer, but I want to make sure I have my ducks in a row.

4. Probate - what are the odds that our estate will go through probate when we die if we have an estate of around $1M to $1.5 M? Do we really need a trust if our assets have beneficiaries identified? What will the government tax if we have beneficiaries for our IRA, 401(k), life insurance, already in place?

Thanks for your help with answering some of these questions

A: There are several issues here.

First, the size of your estate. It’s important what the size is, it’s important what the assets are and how the assets are titled. Currently, the estate tax exemption is $2 million per person. That means that, when handled properly, that a couple can shelter $4 million from estate taxes.

To speak more specifically to your question, I would need a general idea of what your assets are and how they are titled.

Second, probate. This is a completely separate issue from the estate tax one mentioned above. Probate is a legal process that ‘proves’ your Will and distributes the assets that the Will has authority over. Only assets that the Will covers go through probate.

As you mentioned in your question, a Will only applies to those assets that DO NOT have a beneficiary. So things like IRA’s, life insurance policies and bank accounts (assuming they have beneficiaries and those beneficiaries aren’t your ‘estate’) will already avoid Probate.

Normally the most difficult asset to have avoid probate is real estate. Some states now have the ability to name a beneficiary on your real estate, but not too many. This is where a Living Trust comes in. Since a Living Trust has a beneficiary and is considered a separate legal entity, an assets titled in the name of the trust avoid probate.

It’s also easier to have someone manage trust assets on your behalf in the event you become incapacitated.

There are several places you can go to get a low-priced living trust, powers of attorney, etc. I’m not familiar with the site you mentioned but have seen www.legalzoom.com and I know that Suze Orman has a Estate Planning kit that costs about $13 at Amazon.com. Suze’s trust may work well if you have a very basic estate. If you need tax provisions you will need to look somewhere like LegalZoom.

You can act as your own attorney, but it’s always a good idea to have a qualified attorney review it.

Let me know if I can be of further help.

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"A" Rating on Insurance

I recently talked with an agent from Great American Life Insurance about LTCi. I was told this company is rated A. It seems to meet my needs. I would like your opinion on the company.

The reason is because smaller companies don’t have the history and may be mispricing their policies. So a few years down the road they jack the premiums and you’re stuck because to switch companies means the new policy is priced on your condition/age at that time.

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More Articles on Long-Term Care Insurance?

Q: Have enjoyed reading your articles. Do you have any on the long term care insurance issue?

My husband and I are in are 50's and friends are starting to buy policies. I know we would need compounding inflation benefit and paying for return of premium may be not worth the expense. My question is, what... is worth the expense? Are there newer things on the horizon to be offered? I know a lot of folks still don't have policies because they're so high.

A: There should be an article or two on my website on Long term Care. Look under the insurance heading.

To me, it is important to stick with the biggest companies that have been doing it the longest. Companies like Genworth/John Hancock so you can see whether they have a history of increasing premiums for existing policy holders.

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Suggestions on Long-Term Care Insurance Policies?

Q: I read your article on long term care. Could you recommend some companies that offer the best policies?

A: I'm by no means an expert in this area. The ones that I tend to be most comfortable with are Genworth and John Hancock.

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Can I Cancel Universal Life Policy Before Maturity?

Q: My father had Universal Life Insurance with AIG for 12 years. He bought it in 1995 and the marturity year is 2052. We are recently faced with heavy financial difficulty. I was wondering if we can cancel the policy before the maturity date and recover at least a portion of the money?

A: When you surrender a policy, you receive the cash surrender value. You may also have the ability to borrow from the policies cash value. I suggest calling the agent/company to find out the specific options for that policy.

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Gifted 401(k)

Q: I enjoyed reading your article from 2006 about the Pension Protection Act. I have a situation and am not able to find any answers.

My mom passed away in November 2005. Her 401(k) was changed into my name and in December 2006, a minimum distribution was given to me based on my age, etc. I still have the existing 401(k) with her employer; the only difference is that it is in my name now. Am I eligible to rollover the remaining amount into an IRA? Thank you for any help,

A: I am not sure. I would check with the plan provider and see.

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Gifting Question

Q: I have a gifting question. I live in NY. My Mom gifted $77,000 to 7 of our family members in August of 2004. I know there is the 3 year look-back on gifts per Medicaid. Are we safe at this point if Mom needs to go to a nursing facility in the very near future? Also a question concerning the deed/title transfer on my Mom’s home. Mom had the house deeded, notorized and transferred to myself and my brother on 9/7/04 and filed with the town. Is the notorized date the gifted date or when the town finally recorded the transfer? Are we safe on this as well with the 3 year look back?

A: I’m not an attorney, but it sounds like you should be. The gifting date is the date the deed was recorded.

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Annuities Tying Up Money

Q: I read a column you wrote in the Senior Journal on fixed indexed annuity retirement. I was offered of the funds through OM Financial Life Insurance Company. It is called Spectrum Rewards Choice 9.

Is this kind of funds you were writing about? Your description seemed to fit this fund. I was concerned about... the long period of time they tied up your money and the probable rate of return of 6-7%. Which doesn't sound too bad, but early surrender charges are high. And it sounded like the agent and the company would get a fairly high of return for themselves.

A friend told me to check out the web and the first thing I found was your article. Should I avoid this kind of thing?

A: I am not a big fan of any annuities because of the high surrender fees they charge. In today’s market, there are too many other alternatives that don’t force you to give up control over your money. Here’s a report that will help you better understand the financial services industry:

Financial Self Defense

Let me know if I can be of further help.

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Should I Delay Drawing on Social Security?

Q: I am age 66 and plan to work until at least 70 or longer if in good health. My income is a little over 90,000. Through the years I have not been able to start saving until the last 5 years, so I don't have a big nest egg.

Should I start Social Security now and pay higher taxes until I quit working and invest the money, or should I wait and get more per month at age 70.

A: If you don’t need the money for income now, it may make sense to delay starting Social Security. If you look at the annual increase delaying versus starting now and having to lose a lot of it in taxes, it makes a lot of sense. Good thinking!

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Death Benefits for Equity Indexed Annuities?

Q: I was reading one of your very informative articles about annuities. I have a question about the equity indexed annuities if you don't mind.

Do these indexed options come with a death benefit? If you are in the payout period and pass away, what do these insurance companies typically do? Do they pay the beneficiaries whatever balance is remaining or do they keep the balance?

A: Depends on the EIA. With some, the beneficiaries will lose the bonus and index gains unless they take it out over an extended period.

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Free Dinner Invitation

Q: I am a Reverse Mortgage Specialist with a small ethical company in Rancho Bernardo. As a senior myself I am bombarded with offers of free lunches or dinners from these guys in this "Use Your Equity" game.

One mailing said that there was a... better alternative to a Reverse Mortgage. My wife and I went to see what was up. Twenty minutes into the presentation I turned to her and asked if she had any idea what the speaker was talking about. She (Master's Degree) replied that it sounded like double talk.

We sat through the entire program and left shaking our heads. There seemed to be no good reason to do anything they suggested.

Within the last week I spoke with an acquaintance whose father fell prey to one of these outfits. They sold him a life insurance policy and a variable annuity. Two huge commissions. Seniors are very vulnerable.

A: I agree. Let’s try to get the word out as much as we can. I know that my efforts will only affect a small number of seniors. I guess it’s like the boy on the beach throwing the starfish back in.

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Power of Attorney

Q: Regarding durable (or general) power of attorney:

How is it decided that a person is incompetent?

My father is living in a "senior living community", whose own doctor has diagnosed him as having... dementia. I take care of all his finances and mail. The executive director had my father sign to be put on their program whereby he was given a daily multivitamin and aspirin for a charge of $300 monthly. Do I need to have some legal authority declare him incompetent?

A: I would think it would depend on what the power of attorney says. It may be based on letters from two doctors. More importantly, you probably need to be declared his guardian so you can prevent the decision you are speaking of. That would require an attorney.

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Interest on a Loan from My Life Insurance Policy?

Q: I currently have a universal life insurance policy and have had this policy for 11 years. I took money out of the policy about a year ago and I just received a bill from the company for interest owed.

I am a little confused because... I thought the money I took out was money that was mine that built up in the policy, like a savings account. I would guess that I didn't understand the policy when I bought it. Can you shed some light on this subject.

A: It's not your money. If it was, you wouldn't have to 'borrow' it. Of course, that's also why you don't have to pay taxes on it--because it's a loan. As such, you have to pay the insurance company interest on it. Probably a little different than how it was presented?

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